As a recruitment agency, you may well be looking to recommend some of your contractors to use "specified" umbrella companies, but have you done your due diligence on these companies? No? Well are you aware of the risks you may be putting your company under and the potential fines you could be facing for any unpaid taxes?
Contractor Umbrella look at the Draft Finance Act 2016, to see what the impact of changes to T&S may have on you as the recruitment agency in the chain.
Removal of Travel & Subsistence Expenses for Contractors working via an umbrella company from April 2016.
Essentially, the Government believes that it is unfair that contractors claim tax relief on travel and subsistence expenses for home to work travel when permanent employees cannot. Consequently, HMRC have decided that workers who operate through an intermediary (recruitment agency, umbrella company or PSC) will not be able to claim for tax relief on travel and subsistence expenses if they are under the supervision, direction or control (SDC) of anyone within the contractual chain. This also applies if anyone in the chain has the 'right' to supervise, direct or control even if they don't exercise that right.
After 6th April 2016, HMRC will assume that all contractors who work through an intermediary will be under SDC unless they can prove otherwise; unfortunately they have not issued guidance as yet as to what will constitute proof.
The legislation also has an element of 'debt transfer' which means that anyone in the contractual chain that provides false evidence could be held liable by HMRC.
Contractor Umbrella look at the Chancellor’s Budget 2014 in relation to The Onshore Intermediaries Legislation: False Self Employment, The Offshore Intermediaries Legislation: Tax Avoidance, DOTAS, GAAR and TAAR and how the changes may affect contractors and agencies working in the UK.
Recommend an offshore umbrella company and the PAYE burden becomes yours!
Compliance has always been a primary consideration for recruiters when working with umbrella companies but with recent changes to legislation, it has become more important and, in many ways, more onerous. In a surprising move HMRC have significantly increased recruiters’ workload, passing the burden of responsibility for PAYE payments to any agency placing a candidate who has chosen to work with an offshore umbrella company. There may be several recruitment agencies in the chain, due to clients operating preferred supplier lists, but the onus to ensure tax compliance will still fall on the agency that is contracted with the client.
Nowhere to hide?
In their recent consultation document ‘Tackling Marketed Tax Avoidance’ HMRC has advised that 16,000 contractors are currently under investigation following their use of offshore intermediaries and loan schemes to avoid paying the correct tax and national insurance contributions. These investigations can take months, sometimes years, to resolve and therefore HMRC are changing their strategic approach in order to speed up the process and to take action against scheme providers who continue to develop and market such tax avoidance schemes.
To this end new legislation introduced in the 2014 Finance Bill will require contractors that are seeking to take a tax advantage from a scheme which is the same or substantially similar to a scheme that a tribunal or court has already found against will be obliged to settle their tax owed on receipt of a ‘follower notice’ rather than waiting until their particular scheme is tested in court. HMRC also intend that these changes to legislation will be extended to cover National Insurance contributions.
Anti-Avoidance Budget Measures
As was expected, the 2014 Budget confirmed that HMRC will be give new powers in cases where tax owed is in dispute. Users of DOTAS (Disclosure of Tax Avoidance Schemes) or those who have gained tax advantages from using schemes counteracted under the General Anti Abuse Rule (GAAR) will be forced to pay the amount of tax in dispute before their case is tested in law.
The day after Royal assent is given to the Finance Bill this measure will apply to all cases where there is an open HMRC enquiry or appeal. The taxpayer will be sent a ‘Notice to Pay’ which will require them to pay the tax in dispute within 90 days and penalties will apply if the Notice is ignored.
TAAR (ed and Feathered?)
HMRC’s bid to ensure that no-one pays any less than, what they consider to be, their fair share of tax has been stepped up with the proposed introduction of TAAR (Targeted Anti Avoidance Rules) within the Onshore Intermediaries legislation which will come into effect in April 2014.
The additional layer has been added to the legislation, by HMRC, as they have realised that, historically, companies working in the temporary labour market have been quick to react to changes in legislation and to devise new schemes which have no purpose other than to avoid tax and/or National Insurance Contributions. TAAR will enable HMRC to consider the motive behind schemes that have been set up by promoters i.e. is that motive avoiding income tax? They will also consider what the scheme achieves i.e. will a scheme user end up paying less than their fair share of tax.
Onshore Employment Intermediaries: False Self-Employment
In the 2013, budget the Government announced that they would look to tackle the use of offshore employment intermediaries to avoid Tax and National Insurance Contributions. The AS13 - ACCOUNTING FOR INVESTMENTS then suggested that the government should look to strengthen the existing legislation to prevent any employment intermediaries being used to avoid employment taxes by disguising employment as self-employment. This in turn has lead to immense industry speculation as to the effect this could have on any intermediaries even those based onshore, and questions as to who the revenue would perceive to be the “intermediary”.
HMRC issue guidance on where NIC’s liability lies where an offshore agency is involved. So where does the responsibility lie?
HMRC has today (24th March) published rules, which will come into play on 6th April, regarding liability for Employer’s National Insurance Contributions. This follows on from HMRC’s new proposals to tackle tax avoidance by the users and promoters of offshore schemes. Currently, there are a number of schemes being operated which, invariably, promise contractors take home pay of anywhere between 80 and 90%. The scheme operators, who are based in recognised tax havens such as the Isle of Man and Guernsey achieve these figures by encouraging contractors to involve themselves in tax avoidance and by avoiding Employer’s National Insurance Contributions which are payable by all UK employers. As the workers are, for the most part, resident in the UK, tax resident in the UK and working in the UK, HMRC have introduced legislation to redress, what they perceive to be, the unfairness of the situation.
Agencies could fall foul of TAAR under new legislation
At a recent meeting of industry body, All Umbrella Companies Are Equal members were given the chance to question HMRC’s Robert Burton about the raft of new legislation that’s due to come into force to tackle tax avoidance. Robert stated that it was not HMRC’s intention to clamp down on the genuinely self-employed but that it was necessary to consider the question of control when determining whether or not contractors would be affected by the changes to the Agencies Legislation. He also confirmed that dividends are not remuneration for the purposes of the Agencies Legislation and therefore PSC’s will not be affected. PSC’s had been referred to in the guidance purely to deter scheme providers from creating a tax scenario involving dividends which would have no purpose other than to avoid tax and create an artificial structure. He referred to the case of HMRC v PA Holdings which involved a company paying workers in dividends; the Court held that those payments were to be treated as emoluments from employment and they would be subject to class 1 National Insurance Contributions.
If you would like to receive a copy of our Agency Compliance Checklist as proof of our compliance with current UK Legislation, then please complete the form below and one of our experienced account managers will be in touch with the appropriate documentation for you.
Due diligence complete with ContractorUmbrella Ltd!